What is the job of the Strategist?

As a strategist to mid-sized companies, my job is to get senior management to understand the forces buffeting at their business. This week's blog will focus on the 5 Forces which is still the best framework for understanding what is going on around the business and how to shape the best competitive position. My guru of choice was and is Michael Porter and when I wrote my best seller The Power of Strategy back in the mid 1990's, I had applied his model across many businesses, small and large, and diiscovered its power.

the job of the strategist is to understand and cope with competition. Often, however, managers define competition too narrowly, as if it occurred only among today’s direct competitors. Yet competition for profits goes beyond established industry rivals to include four other competitive forces as well: customers, suppliers, potential entrants, and substitute products. The extended rivalry that results from all five forces defines an industry’s structure and shapes the nature of competitive interaction within an industry.

As different from one another as industries might appear on the surface, the underlying drivers of profitability are the same. The global auto industry, for instance, appears to have nothing in common with the worldwide market for art masterpieces or the heavily regulated health-care delivery industry in Europe. But to understand industry competition and profitability in each of those three cases, one must analyze the industry’s underlying structure in terms of the five forces.

How government could support mid-sized companies

The support of mid-sized companies by German government policy is worth understanding. Canadian government gives grant money to the universities but runs into the danger of rewarding the best paper pushers, not money makers. Germany seems to have managed a balance between mid-sized companies and university research.

Germany is known for its mid- to high-technology manufacturing. While the U.S. has witnessed a decline in manufacturing output as a share of GDP, Germany's has remained steady. By specializing in medium and high technology manufacturing, Germany is able support relatively high wages. The Fraunhofer Institutes in Germany are an important reason for its continued success in manufacturing. The Institutes support manufacturing SMEs by creating partnerships between businesses and universities and encouraging industrially-relevant research in advanced technology areas. The Institutes have a budget of $2.35 billion, with $2 billion of that generated through contract research or publically financed research projects. There are eighty research centers with a total staff of 18,000 qualified scientists and engineers. The expertise and partnerships created through this initiative helped sustain high technology manufacturing in Germany and resulted in a high level of market share for SMEs, fueling broad-based export growth.

Should the government match investment funds?

Should the Canadian government encourage international VC investments into Canadian companies.
OK that is a no brainer.
Now what about encouraging international investment partnerships by matching investment amounts? That is tougher but Israel built its innovative sector with this type of LP arrangement.

Israel has one of the most active venture capital networks in the world. While the U.S. might lead the world in venture capital investments in absolute amounts, Israel has surpassed it relative to the size of its economy. The Yozma program (started in 1993) is often credited with initiating the VC industry in Israel. The Yozma program provided tax incentives for foreign VC investments, and the fund was used to match investments. This provided a mechanism of due-diligence for the investments; professional VCs had vetted the firms. Yozma was also used to invest in existing domestic VC funds to help support the new industry.

The objectives of the Yozma program were to: 1. Establish the critical mass for a competitive VC industry 2. Learn from foreign partners 3. Create a network of international contacts

Typically, investments were directed toward high-technology companies in fields in which Israel already had an advantage or competency. By 2000, the amount of VC invested in the country had soared.

How Canada Goose won the E&Y Entrepreneur of the Year Award

Keeping manufacturing in Canada is possible. Canada Goose has their factory creating the quality jackets that fill up Harry Rosen at the beginning of Fall but is it in China? No.
Canada Goose is committed to producing in Canada and were told their costs would not be possible to cover competing against Made in Japan and China products.
Dani Reiss decided he would take the challenge that his paretns set with their appreciation of quality they had known in Europe. Canadian quality would be as wonderful.
Canada Goose has worked to attract the high fashion people, but also the outdoor buffs and above all, the working guys out in the cold. Dani Reiss took a risk and then worked to get the jackets on film sets over the winter and on TV Olympics. He also took up the cause of the polar bear and other innovative projects that project the Canada Goose brand.
I see the jackets on Bay Street and they always look smart. Well done, Dani, for winning the Ernst & Young Entrepreneur of the Year award. It was a long road with icy patches! You deserve it for building a genuine Canadian business. Nice guys finish first.

Why business should investigate R D tax credits

To get companies growing, research and development is required and Canada has a strong R&D credit although SREDS has a very low uptake still. Here are some other countries and their incentives from The Atlantic.

Innovation, along with entrepreneurship, involves a lengthy process of research and development, one that inevitably entails risk for firms and industries. There are three main categories of risk: regulatory, innovation and monetary. My research and others' shows that lucrative reward systems and regulatory structures directly influence the level of R&D activities. Tax credits are one way to effectively reduce the risks inherent in conducting R&D.

Some readers will be surprised to learn that France has the most generous tax incentives for R&D among the OECD countries. The government is continually expanding the scope of the tax credit, and the amount of funding available nearly doubled between 2006 and 2008. A company can receive up to 50 percent of its R&D costs the first year; 40 percent is covered the second and 30 percent in the third. There is a mechanism that allows funding to be "fast-tracked" for small- and medium-size enterprises, and in most cases, the waiting period for approval is only three months. Lastly, the tax credit is either deducted from the annual corporate tax or reimbursed after three years, providing greater flexibility. The tax subsidy rate per $1 of R&D in France averages 43 cents, while in the U.S. it is a paltry 7 cents.

Finland serves as another example of using policy solutions to transform its economy from resource-based to knowledge-based through consistently increasing gross expenditure on R&D. Simultaneously it has also pursued international scientific collaboration, university/industry partnerships, and enhanced venture capital availability. On a per capita basis, Finland now claims double the OECD average of patent output.

Why our government does need to help business

Innovation is something the government is trying to jump start. It begins at school and with the Canadian education system, although it is not too shabby, there are human capital investments that could be made. Our teachers' union is very powerful so these are probably a non-starter and since the majority of teachers are now female and so are university graduates, merit is a touchy subject.
Equity of input and outcomes is over riding merit and reward for effort.
Singapore paid attention to human capital and focused on merit. I believe their per capita GDP has now passed Canada.
Is the social cost of rewarding young people based on merit worth it?
 Here is The Atlantic:

 In 1960 Singapore had a per capita GDP of $2,300, roughly equal to Jamaica's. Singapore focused on becoming a financial services and research hub, while Jamaica concentrated on tourism. Fifty years later Singapore's per capita GDP was $43,100, while Jamaica's is slightly above $5,000.

The difference was investment in human capital. Singapore's education system is heavily subsidized by its Ministry of Education to ensure a meritocratic principle that identifies and nurtures bright young students for future leadership positions. In the '60s, Singapore attracted foreign capital by targeting labor-intensive manufacturing to create jobs. As its workforce became better educated through its investment strategies in the '70s, it began attracting higher value-added industries such as petrochemicals, electronics and data storage. Today, Singapore is a leader in a host of knowledge-based industries, including the biomedical sciences. In just the past decade, the number of scientists has leapt from 14,500 to 26,600, a gain of more than 80 percent. In the most recent Global Competitiveness Report put out by the World Economic Forum, Singapore ranked 1st in the quality of its math and science education.

How does a VC pitch get taken seriously?

Pitching your business is critical whether you are on BNN The Pitch or at the holiday cocktail party.
Here is a terrific, snappy TV Show with two business owners asking for $5 million equity investment into their business. How do they get taken seriously?
Watch the show here:
http://watch.bnn.ca/the-pitch/#clip573383

Is equality the best big goal for a society

Equality or equal opportunity for all? Equality in a society is a major goal for many - I get emails and Facebooked about this topic all the time.
So is equality for all the best goal? What are the long term consequences? I know when I see my tax bill, I often want to put my resume on Monster and get a union or government job.
I am not sure if this is a true story, but it resonates with me - a business owner, a job creator and a tax payer.

An economics professor at a local college made a statement that he had never failed a single student before, but had recently failed an entire class. That class had insisted that Obama's socialism worked and that no one would be poor and no one would be rich, a great equalizer.

The professor then said, "OK, we will have an experiment in this class on Obama's plan". All grades will be averaged and everyone will receive the same grade so no one will fail and no one will receive an A.... (substituting grades for dollars - something closer to home and more readily understood by all).

After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little.

The second test average was a D! No one was happy.

When the 3rd test rolled around, the average was an F.

As the tests proceeded, the scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.

To their great surprise, ALL FAILED and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great, but when government takes all the reward away, no one will try or want to succeed.

It could not be any simpler than that. (Please pass this on)

Remember, there IS a test coming up. The 2012 elections.

These are possibly the 5 best sentences you'll ever read and all applicable to this experiment:

1. You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.

2. What one person receives without working for, another person must work for without receiving.

3. The government cannot give to anybody anything that the government does not first take from somebody else.

4. You cannot multiply wealth by dividing it!

5. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that is the beginning of the end of any nation.

Next 36 Ventures tonight at MaRS and on BNN The Pitch

The energy in the room will be at nuclear fusion level tonight. Why? Imagine 36 of the young, newly selected participants in an entrepreneur incubator in one room with Canada's leading entrepreneur community and now you get the idea. It is a lethal combination of excitement.

I am meeting the Next 36 Ventures Finalists at MaRS and Claudia Hepbourn has done an incredible job of developing emerging entrepreneurs and making young people build their careers and business ideas.

Several of the better concepts made it onto the business owner show where they pitch for VC and private equity money. 

See "Whadyathink?" and  "Playfit Mobile" pitch to Jacoline Loewen, Loewen & Partners, private equity expert on BNN's The Pitch.

Whadyathink - http://vod.bnn.ca/Video/507127

Playfit Mobile - http://vod.bnn.ca/Video/507128

The Decision - http://vod.bnn.ca/Video/507129

or view at

http://vod.bnn.ca/Video/507127

Birch Box creates a new channel for make up and cosmetics

Cosmetic brands are the female equivalent of game apps. As a founder, if the brand catches on, the pay off can be great.
I was talking with a cosmetics business owner and a private equity fund from San Francisco and The Shopping Channel is one high risk and expensive way to get a brand boosted but there is an exciting new company called Birch Box that has created an entirely new channel to reach make up hungry females who can never have enough lipsticks or eye shadows.

Bayley Barna and Katia Beauchamp got their investor partners on board and learned that there is a dangerous side of shipping cosmetics.

Birchbox is the startup that VCs can't stop talking about and that new startups are trying to emulate.

The company, which sends its customers a box of beauty products samples every month, launched just over a year ago and it has been growing exponentially with more than 45,000 users and various upscale cosmetic partners such as Khiels, Carol's Daughter and Kerastase.

Read more: http://www.businessinsider.com/what-is-birchbox-2011-11#ixzz1ej6fTHG7